Good day, ladies and gentlemen. Welcome to Xcels Energy's Year End 2020 Earnings Conference Call. Today's conference is being recorded. Questions will be taken from institutional investors. Reporters can contact media relations with inquiries and individual investors and others can reach out to Investor Relations.
At this time, I would like to turn the conference over to Paul Johnson, Vice President of Investor Relations. Please go ahead.
Good morning, and welcome to Xcel Energy's 2020 year end conference call. Joining me today are Ben Foulke, Chairman and Chief Executive Officer Bob Frenzel, President and Chief Operating Officer Brian Van Avel, Executive Vice President and Chief Financial Officer and Amanda Rome, Executive Vice President and General Counsel. This morning, we'll review our 2020 results and share recent business and regulatory developments. Slides that accompany today's call are available on our website. As a reminder, some of the comments during today's call may contain forward looking information.
Significant factors that could cause results to differ from those anticipated are described in our earnings release and our SEC filings. Today, we will discuss certain metrics that are non GAAP measures, including the ongoing earnings in electric and natural gas margins. Information on the comparable measures and reconciliations are included in the earnings release. I'm going to go off script for a section, which sounds a little bit dangerous, but in December, utility that I've recognized Ben Fok as Utility Executive of the Year for his environmental leadership. Ben was the architect of our steel for fuel strategy to excel.
He's also
the one that drove us to be
the 1st utility to declare that we're going to have an objective of 100% carbon free by 2,050. This is a well deserved and overdue award. With that, I'll turn it over to Ben. Oh, Bill, Paul, bless you, Bill. I'd say that old saying, never get off the bill Paul, never get off.
I'm not quite sure what that means, but I'll just take it. That's from a popular snout. Anyway, okay. All right. So I'm not going to go off script, and I'm going to thank everybody and welcome you to our call.
Last year was certainly a challenging year, but our employees came through delivering on our financial and operational objectives while mitigating the impacts of COVID and helping our communities. Overall, 2020 was truly a stellar year. We executed on our business continuity plans as we kept employees and customers safe while providing reliable customer service. We're helping to jump start the economy through our capital investment programs, which create jobs and investment in our communities. And we've stepped up our commitment to charitable giving to support those in need, including donating the gain of almost $20,000,000 from our sale of the Mankato facility.
We had a long and impressive list of accomplishments in 2020. Let me share a few of them. We delivered EPS of $2.79 in 20.20, which is the 16th consecutive year of meeting or exceeding our earnings guidance. We raised our annual dividend by $0.10 per share, which is the 17th straight year we've increased our dividend. And we achieved a total shareholder return of just over 7.8%, which was the 2nd highest TSR for our peer group.
Our O and M declined almost 1% as we took actions to mitigate the impacts of COVID. The Minnesota Commission approved our wind repowering proposal and I request to acquire the Maurer Wind Farm. And finally, we resolved multiple rate cases during the pandemic. Now turning to our investment plans. The Minnesota Commission recently approved our 650 Megawatt wind repowering proposal with $750,000,000 of rate base investment.
The wind portfolio is projected to provide customer savings more than $160,000,000 over the life of the assets. It will create jobs, jump start the economy and reduce carbon. In addition, we're also proposing to acquire a repowered 120 Megawatt wind farm PPA buyout for about $210,000,000 Now this project was initially submitted as part of the Minnesota Relief and Recovery RFP, but the repowering didn't result in customer savings. However, we worked with the party on the terms and the project is now expected to provide customer savings over the life of the asset. So we'll move forward with it.
We also plan to file our Minnesota solar proposal later in the quarter. This project consists of 460 megawatts of solar facilities near our retiring Sherco coal plant, which takes advantage of existing transmission. We fine tuned our projections and now expect an estimated investment of $550,000,000 This lower cost provides more benefit to our customers. We have requested a commission decision on both projects in the Q3 and are confident the commission will see the consumer benefit. As part of our strategy to lead the clean energy transition, we're also working to electrify the transport sector.
In 2020, we announced the goal to enable 1,500,000 electric vehicles in our service territory by 2,030. We have programs and filings underway in various states and our transportation electrification plan in Colorado was just recently approved. And we continue to achieve important milestones in our nation leading wind expansion program with the completion of 6 projects in 2020. These projects represent nearly 1500 megawatts of capacity and were completed under budget. In addition, we have approximately 800 megawatts of wind projects under construction, which are expected to be completed in 2021.
We're excited to continue the clean energy transition, will result in significant customer savings and carbon reductions. We also had a strong year operationally. For example, our nuclear team continues to make great strides in transforming performance while reducing cost. The fleet achieved a capacity factor of over 96% in 2020, even with a refueling outage during COVID. We have one of the top performing nuclear fleets in the country as rated by both the NRC and INPO.
And in addition to strong performance, we have continued to lower our cost structure with O and M costs declining by more than 5% in 2020 and this is the 6th straight year of declining O and M costs in our nuclear operations. So I'm extremely proud of the effort and the results of our nuclear employees and their leadership in our industry. Beyond our strong financial and operational performance, I'm also very proud of our ESG leadership. In 2020, we estimate that we reduced carbon emissions by about 50% from 2,005 levels, and we remain on track to achieve an 80% carbon reduction by 2,030. We announced our plans to convert the Harrington coal plant in Texas to natural gas by the end of 2024.
Working with our CLIL owners, we announced the proposed early retirement of the Craig and Hayden coal plants in Colorado. We will address the remaining coal plants in Colorado in our resource plan filing at the end of March. We're also making significant strides to improve ESG compliance, transparency and disclosure as we issued our TCFD risk assessment, our natural gas report on our plans to reduce greenhouse report. We earned another perfect score on the Human Rights Campaign's Corporate Equality Index and remain among the best places to work for LGBTQ Equality. All of this adds up to an outstanding ESG record, which is integrated into our strategy and increasingly important to investors.
I'm really pleased with our accomplishments and looking forward, I'm excited about the opportunities we have in 2021 beyond. With that, I'll turn it over to Brian.
Thanks, Ben, and good morning, everyone. We had another strong year, booking $2.79 per share for 2020 compared with $2.64 per share last year. The most significant earnings drivers for the year include the following: higher electric margins increased earnings by $0.32 per share, primarily driven by riders and rate outcomes higher AFUDC increased earnings by $0.08 per share due to large projects under construction, including our wind generation. Lower O and M expenses increased earnings by $0.02 per share, driven by our cost management efforts. And finally, a lower effective tax rate increased earnings by $0.22 per share.
As a reminder, production tax credits lowered the ETR. However, PTCs are flowed back to customers through lower electric margin are largely earnings neutral. Offsetting these positive drivers were increased depreciation and interest expense, which reduced earnings by $0.36 per share, reflecting our capital investment program. Other taxes, primarily property taxes, reduced earnings by $0.06 per share. And finally, other items combined to reduce earnings by $0.07 per share.
Turning to sales, as expected, COVID had an adverse impact as weather and leap year adjusted electric sales declined by about 3%. For 2021, we don't anticipate a full shutdown of the economy like we experienced last spring. Instead, we expect a slower recovery of lingering impacts throughout the year. As a result, we anticipate modest weather adjusted sales growth of approximately 1% off of depressed 2020 sales levels. As a reminder, we have a sales true up mechanism for all electric classes in Minnesota and decoupling for the electric residential and non demand small C and I classes in Colorado.
This covers about 45% of our total retail electric sales. Shifting to expenses. We showed strong cost management by reducing O and M nearly 1% to mitigate the adverse COVID impacts. We expect O and M expenses to be relatively flat in 2021, reflecting incremental costs for our new wind farms, offset by a decline in base O and M. Next, let me provide a quick regulatory update.
In December, Minnesota Commission approved our 2021 sale proposal as an alternative to our filed rate case. We view this as constructive outcome that will allow us to focus on the Minnesota Resource Plan and other policy initiatives in 2021. In January, we filed a New Mexico rate case seeking a rate increase of approximately $88,000,000 or a net rate increase of $48,000,000 after reflecting the fuel savings and PTCs from the Sagar Wind Farm. The net increase is driven by investment in transmission and distribution due to the significant growth in New Mexico since the last case. The request was based on ROE of 10.35 percent, an equity ratio of 54.7 percent, a retail rate base of $1,900,000,000 and a historic Hess year.
It also includes changes in depreciation to reflect the planned early retirement of our Tope Coal plant. The decision and implementation of final rates is anticipated in the Q4 of this year. We also plan to file a Texas rate case later in the quarter. Both cases were required as a part of the approval of our wind projects at SPS. In November 2020, we filed a request in North Dakota seeking an electric rate increase of approximately $22,000,000 This is our first rate case in North Dakota in 8 years.
The request was based on an ROE of 10.2%, an equity ratio of 52.5%, a rate base of $677,000,000 and a forecast test year. Interim rates were implemented in January and the decision is expected later this year. And in February, we will file a transmission expansion plan in Colorado to increase capacity to enable the addition of renewables to the system. We will also file a resource plan in Colorado at the end of March. It will include proposed plans for remaining coal plants in the state as well as additional renewable resources as we work to reduce carbon emissions at least 80% by 2,030.
The transmission expansion and resource plan will provide transparency into our long term opportunities and will likely lead to robust capital investment in the second half of the decade. We expect the decisions on both the transmission expansion and the resource plan by early 2022. As Ben mentioned, the Minnesota Commission approved our wind repowering proposal. As a result, we're moving these wind projects into our base capital forecast, which now reflects rate base growth of 6.6%. We also have potential incremental CapEx of approximately $210,000,000 for the PPA buyout and $550,000,000 for the Sherco Solar Facility.
If approved, rate base growth would be 6.9%. Accordingly, we have updated our capital tables and our financing plans as detailed in our earnings release. We anticipate that the incremental capital, if approved by the Minnesota Commission, will be financed with approximately 50% equity and 50% debt. This incremental equity will allow us to fund accretive capital investments, which will benefit our customers while maintaining our solid credit metrics and favorable access to the capital markets. And with that, I'll wrap up with a quick summary.
We continue to provide reliable service to our customers, while ensuring the safety and well-being of our employees and communities. We effectively mitigated COVID impact and delivered earnings within our original guidance range for the 16th consecutive year. We increased our dividend for the 17th consecutive year. We continue to execute on our steel for fuel strategy by adding nearly 1500 megawatts of owned wind in 2020. Minnesota Commission approved our wind repowering proposal and the acquisition of the Maurer Wind Farm, both of which will provide significant benefits to our customers.
The Colorado Commission approved our transportation electrification plan. We enhanced our ESU disclosures and made further progress through this coal exposure and delivering our carbon reduction goals. We resolved multiple regulatory proceedings. We've reaffirmed our 2021 earnings guidance of $2.90 per share to $3 per share. And finally, we remain confident we can deliver long term earnings and dividend growth within our 5% to 7% objective range.
With that, that concludes our remarks. And operator, we'll now take questions.
Thank We'll take our first question from Jeremy Tonet with JPMorgan. Please go ahead.
Hi, good morning.
Good morning, Jeremy. Just want to start off with what you could say about what
type of capital opportunities are you seeing associated with the Colorado IRP? And I was just wondering if you could frame the magnitude of what incremental spend might look like versus your current plan?
So,
two parts to that is really the Colorado transmission expansion plan. And if you've heard about us talk before about transition, we see a lot of opportunities to really this is needed to enable our energy transition, right? We need to enable several gigawatts of renewables. And if you think about that, it's enabling low cost universal scale solar and wind to bring it to our load centers in Denver. So what you'll see out of that, and now I can't give you specifics in terms of the overall capital investment, we'll file that in the next month or so.
But significant investment opportunity on the transmission side, it's really a transmission backbone to deliver that for our customers as part of the ERP. On the Colorado resource plan, I think more detail will come on that. But look at our Minnesota resource plan as a good proxy, where we have several gigawatts of renewables in our preferred plan through 2,030. So it will look and feel a lot like that. We're looking at what we're doing with our coal plants and adding a lot of renewables to help us achieve that 80 percent plan.
So we're excited about it, excited to drive that transparency into the back half of this decade and more details to come.
That's helpful. Thank you. I was just wondering if you might be able to comment on how the PPA bio opportunity set has evolved the past year or so during the pandemic. And do you expect any market changes going forward here?
No, I think it has evolved a little bit. You see we just announced one here, generic. We'll provide more details and officially announce that in the next month or so as we file it. We're excited to continue execute on it. We delivered the Mower PPA buyout this year with the commission and this one.
I know we continue to have conversations with our counterparties. I think there's another opportunity if you see potential tax credit extensions in Washington that you get some further repowering opportunities. But it's something that we continually look at and work on with our counterparties. There's another good data point to watch is that our IRPs often drive RFPs where we can have PPAs bid into us, PPA Biode opportunities. So that's a really good opportunity longer term.
So but we're excited about it. We've delivered if you look what we've delivered on our PPA biota opportunity, we've counting this one that we just announced, it's over $500,000,000 of PPA buyouts, and that's excluding Mankato. So we've delivered Mauer, Long Road, this new one, and Mancheath and Valmont. So a good long term opportunity as you continue to look at harvesting it.
Yes. And I think just whether it's PPAs, whether it's transmission spend, whether it's renewals, you should feel very confident that we've got a long runway of capital investment and that's what we're really excited about. And of course, we've been focused on renewable that actually saves customers money too, so that this clean energy transition can be driven by economics, which of course then sets up the electrification of other sectors like transport. So, I think we've got great organic growth in front of us, Jeremy.
Got it. That's very helpful. Thanks. And one last one, if I could sneak in here. Just wondering, what do you guys see as the risk and opportunities with the potential acceleration of Minnesota's carbon free electricity goal to 2,040 here?
And also thinking about on a national level, Biden has set up plans for 2,035 there and just wondering if you had any thoughts you could share? Thanks.
Well, I mean, first of all, pretty pleased that Xcel and our whole industry now is really on board, achieving net zero goals. And for us, we think we can do 0 carbon, not net 0, but 0 carbon by 2,050 with an important interim goal of 80% by 2,030. But if you heard me talk before, I will tell you that that last 20 percent is going to take technologies to become commercially viable because, Jeremy, I think it's incredibly important that this transition is based on economics so that you do have the opportunities to electrify other sectors with economics and buying. You get a lot of bipartisan support when economics can drive the decisions. So could we go faster than our goal of 2,050?
Well, it's possible. I mean, but I think that would mean that those technologies that we refer to, whether it's the next generation nuclear, whether it's the development of hydrogen, whether it's carbon capture working economically, whether it's long term storage, they have to come into the buying much sooner than I think they will. But you've heard me say before, I never bet against technology. So more to come on that.
Got it. Appreciate the thoughts there. That's it for me. Thanks.
We'll take our next question from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good morning team. Thanks for the time. So just wanted to follow-up on Colorado and Lena's thought process on timing for a rate case there. I in conjunction with the question, I'm just curious about the shift in your 2021 guide on O and M. Is that driven in part by a thought process on Colorado rate case timing?
Or I also noticed
that there's a little bit of
a shift in the rider revenues there as well.
So if you could speak to
the 2021 shift on O and M as well as the latest on Colorado and timing there as well, if you don't mind.
Hey, Julian, it's Bob. Good morning, and thanks for the question. With regard to the case, I'll cover that and I'll turn it back over to Brian to talk a little bit about your question on the O and M. So in Colorado, obviously, we've been talking about a case there. We filed 2 riders in the summer of last year.
Obviously, we watched what happened with the AAGES rider. We're still prosecuting the wildfire rider. But there's a number of other factors that go into evaluation of our case in Colorado, and we're continuing to watch those. Obviously, the pace of economic recovery in Colorado is very important. We're seeing very strong growth there.
But as Brian indicated, our sales forecast still expects a slow recovery with some lingering impacts. So sales is a key driver and obviously our efforts around O and M and efficiencies that we can gain in that business will probably dictate when and how we file a case in Colorado. It's likely a second half outcome at the earliest, and it's largely associated with capital investment in the distribution business and in enabling technologies for us to continue to deliver a great customer experience out there. So more to come from us, but it's probably at least a second half decision for us.
And good morning, Julian. On your O and M question, first, just let me say, really proud of the employees and the work that was done in 2020. Just a great effort in terms of the mitigation work that everyone did in this company. About 2021, it's a combination of things. 1 is, we'll continue to drive sustainable cost transformation.
And 2, our 2020 actuals came in a little bit higher than we thought in Q3 due to a couple of discrete items. So but expect us to continue to drive O and M transformation. Now what you don't see in our flat guidance is we're adding about $50,000,000 of wind O and M in 2021. So we're offsetting that to keep our overall O and M flat with our cost transformation efforts. So excited about what we accomplished in 2020 and what we expect to accomplish in 'twenty one and beyond.
Excellent. Thanks, team. Bob, coming back to you real quickly, if I can. In terms of when you said that there, to quote you, a number of other factors here that go into it, I think if I'm hearing you right, perhaps the most decisive one is obviously the sales and economic growth. Are there other material drivers that will come into it?
It sounds like you're just waiting to see the trajectory of this post COVID year on sales. But I don't want to mischaracterize that.
Look, we still have our wildfire rider proposal in front of the ALJ right now. We went through hearings a week or 2 ago and felt like we made a really good showing there. I mean, this is a significant investment to mitigate a big state policy desire in terms of mitigating wildfires. So we'd asked for a rider the intervenors came back proposing deferrals and we're differing on links and return profiles of those. So obviously arguing a decent outcome in the wildfire rider is one of the factors that would go into
our decision making, but not certainly not exclusive.
Julian, probably it's the fact that it's sales, it's O and M, and then it would be regulatory decisions. All of that would factor into a midyear kind of review and determine whether or not we need to file or not.
Right. Yes, understood. If you got the deferral, would that be adequate? It sounds like there's more than just a binary decision on the wildflower here.
You'd have to just look at how the devil is always in the details on those things. So that along with the other drivers that I mentioned, sales and O and M, will be
all the factors that we looked at. Totally appreciate it.
All right, guys. Thank you very much. All the best. Speak to you soon.
You bet. Thanks, JLN.
We'll take our next question from Insoo Kim with Goldman Sachs. Please go
ahead. Good morning.
Thank you. Good morning. Brian, on the 5 year CapEx plan, can you just, I guess, go through which of the items are in the base plan versus the incremental? I know the proposed repowering and the WinPE buyout is the incremental amount in the base, but are investments in the Harrington coal plant conversion and the investments with terra wildfire protection, all of those, is that embedded in the base plan or would that be incremental?
Yes. No, those are the ones that you mentioned are basically in the base plan. It's a relatively small investment in the Harrington and the conversion of Harrington from coal to natural gas. And we do have our wildfire investments in our base plan. You're right, clear that we have the solar opportunity and the PPA plant opportunity in the incremental plan and hope to and expect to get visibility into those by the end of this year.
So we can provide color and hopefully have a rate base growth trajectory of nearly 7% that we execute on those.
Got it. And then just going back to Jeremy's question on President Biden's plans to achieve the carbon pollution free power sector in the U.
S. By
2,035? And setting aside for a moment the probability of passing hacking your federal state policy situation, but
do you think when you look at your fleet, the undepreciated value of your remaining coal plants or other fossil fuel fossil fuel units. How do you see that? Do you see that as potentially achievable given the current regulatory and price framework for renewables? Or what items do you think you would need on both ends to achieve that?
Well, the accelerated depreciation is certainly a factor. But as I said with the prior question, it's far more a question of are the technologies ready and economically viable
because
getting to 80% is not easy, but we know we can do it with move completely away from fossil would require an incredible emergence and acceleration of technologies that I think are still a ways away. So, I mean, again, it's technology can emerge, but 2,035 is like tomorrow in utility land as far as technologies go. So I think there's going to be I mean, I think there's going to be an element of pragmatism that gets baked into those goals. And I've always said, we'll move as fast as the speed of technology and that's what we'll do. But honestly, I think it's a very much of a stretch goal based upon the way I see the horizon in front of us.
So that said, I
mean, but there's a lot of good things that come with that goal. We support 100% carbon free. So we're aligned with that. I think under the Biden administration, you'll see an acceleration of EVs and an acceleration of transmission build. I think you'll see an acceleration of the R and D in the technologies that we need to achieve those goals, whether it's 2,035, 2,040 or 2,050.
And I think that is the key to me. And if we can all pull together on that and develop the right frameworks, invest in R and D, have the right tax policies, I think we're going to do amazing things. And nobody would have thought that we'd be where we are today as an industry and certainly not at Xcel Energy just 5 years ago. So I'm excited about what the future possibilities hold.
Got it. Thank you so much for the color.
Got it.
We'll take our next question from Stephen Byrd with Morgan Stanley. Please go ahead.
Hey, good morning. Hope you all are doing well.
We are.
Great. Just following up on you can sense the theme and the questions here on federal policy, but I wanted to maybe get a little more specific. We may see further legislation that would both extend tax credits for wind and solar, potentially create a new tax credit for storage. And I'm just curious, if you saw that kind of, let's say, that there is a longer term extension, could that be material enough for you all to want to both kind of relook at your Minnesota resource plan? Could that have a pretty big impact on how you think about your resource mix in Colorado?
Like how impactful could longer term extensions for wind and solar and kind of the new tax credit for storage be as you think about your resource mix in the future?
Well, first of all, I think overall, it would be a positive. So and I think there's also discussion about tax credits for nuclear as well, which I am fully supportive of, and transmission. All of those things are going to enable us to go, I think even faster because of the affordability equation to it. Obviously, at some point, you do saturate the big grid with renewables regardless of cost. But if renewables continue to fall in price, even what that would allow you to do is put more renewables on your system even if you have an increase in curtailments because the economics would pencil out better.
So that's probably a long winded answer to your question, but hopefully, that gives you some insights to it.
And Stephen, I'd just add that depending on how I certainly double the details, but depending on how long that PTC extension is for wind, you start to see more repowering opportunities come up as the wind farms exit their original 10 year PTC life. And so that's what you saw with the couple of wind farms that we got approved recently in Minnesota Commission. So I think that could present itself some more opportunity to see at a longer term extension.
That's a good point. Maybe just following up a little bit on this. So let's dream here and let's say that there is going to be longer term extension of these tax credits and new storage tax credit, maybe transmission, nuclear. Is that enough to sort of trigger a kind of a formal review on your part in terms of the mix that you've sort of established? Or is it less formal and it was just you continue to evolve what you're thinking over time, but it wouldn't necessarily sort of trigger a reassessment of your broader plans?
Well, I mean, I think it would I think it just puts our IRP processes and our proposals that much more deeply in the money for our customers and it makes the economics that much more compelling. Again, I think we can do more, accelerate some of the renewables that we put into our system within operational limitations. But boy, Stephen, I mean, if you've got if our electricity because of those things becomes even more affordable, think about the opportunities to accelerate EV and electrification of other sectors. I mean that would be a tremendous benefit.
That's a fair point. Maybe just on EV's last question for me, I promise. Just if we did
Steven, you both can't hear you. I think
he hung up on us.
No, I don't think he hung up. He's still there, I think. Steven, did you go on mute by accident? That's one of the most popular terms in 2020, by the way. The other one is, could you go on mute?
And the other one is, I forgot my mask.
We'll take our next question from Sophie Karp with KeyBanc. Please go ahead.
Hi. Good morning, guys. Hope you can hear me. Congrats on the good year in this challenging environment for sure. Maybe to continue with the EV topics, right, What are the opportunities in the EV advancement, I guess, for you aside from participating in the charging infrastructure?
Have you done some modeling maybe along the lines of if a recent maturation in households are at certain levels, there's maybe some upgrades need to be to the distribution system. Do you know which areas or which states maybe have more need for that? Like how should we think about that? Because that's a really topic that's been on my mind a lot. Thank you.
Hey, Sophie, it's Bob. Maybe I'll start this and then I'll kick it over to Brian potentially. You're a little bit muffled, but I think you're asking about what's the investment opportunity if we have a $500,000,000 in electric vehicle and that includes charging stations and the distribution infrastructure that you mentioned to enable that. And over the decade, that number is closer to $1,500,000,000 to $2,000,000,000 Similarly, that's all encapsulating into the distribution system. I think the one area that we could probably still sharpen our pencil on a little bit is the impacts of fleet and heavy duty vehicles and how that would impact us.
Those are very discrete and high loads in certain feeders on our system. And we probably aren't owners of those vehicles. So it's possible there's some incremental upside there. Our distribution feeders are, I wouldn't say, wildly underutilized at point. And so potential capital expansion opportunities on fleet and heavy duty vehicles is probably where any
of the upside might come.
I think too, Sophie, there's a virtuous circle here. The more EV penetration we get, particularly if we encourage customers to charge off peak, the more all customers benefit. And so that tends to give us that tailwind of keeping our products affordable, which makes more electrification, more EVs, everything else more uber exciting. You look way down the road, and there's a lot of folks that think EV penetrations could be an extension of the grid, if you will, and the use of those batteries. And I was kind of encouraged by the CEO of Ford when he spoke to us at an industry event.
And he was he saw that future too because in the past, I've been told that the car manufacturers were a little worried about using batteries in that matter. Now we're a ways away from that, but I mean when you look down the road, you can certainly see a future that incorporates EVs into the grid.
Got it. Got it. This is very helpful. Thank you. And then just on the power supply side, as the renewable targets and goals become more aggressive and possibly a few more build out if, like you mentioned, we will have additional ITC or other fiscal incentives.
Is there a scenario where maybe you see kind of throwing in there potential whole retirements in Colorado? Is there a scenario where in some of the jurisdictions, Colorado specifically or maybe Minnesota, you would see a shortage of base load power or like some dispatchable capacity, if you will, like what they're seeing maybe in some other regions in that area right now? Or do you feel like you have adequate supplies to tie you over to the point where you can have dispatchability in the resource?
Sophie, let me just make sure I heard your question because it is a little bit muffled. Did you ask, do you see a situation where because of EV penetration and other things that we might have a shortage Expansion, backhaul generation?
Yes. Is that your question?
Yes. Not as much because of EVs, but due to higher maybe wind penetration and coal retirements in the region.
Well, that's what the IRP processes are all about. We do take a long term view. That's why I do think the vertically integrated regulated model really works because we can plan for those kinds of contingencies and make sure that we do have adequate reserves and adequate backup. The point that we have to get across is to hit important interim goals. We do need in the upper Midwest to preserve our nuclear fleet.
That's going very well, by the way. And we're going to need a little more gas backup, not necessarily using more gas, but having there having it ready when some of the renewable kinds of things we have to discuss in those resource planning processes so that we have a plan to your point that provides some economic benefits, the environmental benefits and of course maintains reliability.
Thank you so much. I'll jump back into the queue.
Thank you, Sophie.
We will take our final question from Paul Patterson with Glenrock Associates. Please go ahead.
Hey, can you hear me? Hey, Paul, we can hear you loud and clear.
We can always hear you. Okay, awesome. So I wanted to just really quickly, I noticed that microgrids that you guys have a microgrid project, I think, in you filed for something, I think, in December in Wisconsin. I was just wondering, what are you seeing? Or are you seeing any trend in that in any other service territories?
Or I mean, I realize it's a pilot, and I think it's only around 170 something million. But just sort of wondering if there's anything more you're seeing on that end in your service territories?
You want
to take it, Bob? Paul, it's Bob. Look, we filed for some, we call them community resiliency initiatives in Colorado and work those through the process with the commission. And we've now got approval and we're going to start to build out those initiatives. Haven't seen a lot of pull in microgrids in the rest of the service territories, but obviously something that we're willing to explore with our customers through the process.
But it's been pretty quiet other than Colorado.
Well, micro grids, I think micro grids have a role in utilities' future. It's just they don't come without a price tag. So the resiliency element of it, those become important things. And what we're always willing to do is figure out how we can incorporate that into our total distribution planning process. And I think you'll see more of that in the future, but it is not it's not without a cost, obviously.
So just to sort of follow-up on that, because I guess it varies from territory to territory. I guess, within your service territories, I guess, the economics just simply aren't there in terms of arbitrage and stuff in terms of offsetting those costs. Is that how you sort of see it in terms of it being widespread?
Yes, I think that's fair. I think that they work primarily, again, when extra resiliency and extra reliability is in order.
Got it. Okay. Thanks so much.
Thank you, Paul.
Ladies and gentlemen, this concludes today's question and answer session. For closing remarks, I'd like to turn the conference over to Brian Van
Ael. Yes.
Thank you all for participating in our earnings call this morning. For any questions, just please contact our Investor Relations team and have a great day. Thank you all.
Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.